Coming in 2014: The First Electric BMW
Eileen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
BMW’s (NASDAQOTH: BAMXF) first electric car, the i3, is ready to roll off of the assembly line. In the second quarter of 2014, the car will go on sale in the U.S. with a price tag of $41,350, before tax and other incentives. For buyers interested in adding an optional gas motor to increase the car’s driving range, the price jumps to about $45,000. The car was designed using a variety of lightweight materials meant to improve driving range, a major issue for electric cars. It has a chassis made of aluminum, and the substructure of the passenger compartment is made from carbon fiber.
The company’s financial report for the second quarter stated its commitment to the “technologies of the future.” BMW CEO Dr. Norbert Reithofer told the Wall Street Journal that the company was looking at the long-term potential of electric cars 10, 15, and 20 years into the future; he stated that “cars like the BMW i3 are a must.” To comply with government emissions standards set to take effect by 2025 in the U.S., China and the European Union, BMW will need to increase the number of plug-in hybrids and electric battery vehicles it offers by 30%.
The company increased its capital spending by almost 42% in 2012, and also increased R&D spending by 17% to almost $12.2 billion. A section of BMW’s factory in Leipzig is being used specifically to design and build the i3. BMW expects to maintain growth in overall sales for the remainder of this year, though the i3 won’t affect sales figures until 2014. The BMW brand had a strong second quarter, with record sales volume of 422,844 units. Net profits for the BMW Group rose 9%, despite ongoing economic issues in Europe.
Can BMW’s i3 beat Tesla’s Model S?
The i3 is considered an immediate rival to Tesla Motors’ (NASDAQ: TSLA) Model S luxury sedan, though there is a significant difference in driving range and price. The Model S has a driving range of about 265 miles and a starting price of $69,900 before tax incentives. The i3 is priced under $50,000 and is expected to run up to 100 miles on a charge. During the second quarter of 2013, Tesla reported that production was better than expected with a delivery of 5,150 vehicles, compared to the original forecast of 4,500. Cost improvements were made to the Model S during the quarter, including the redesign of various elements to make manufacturing easier and to achieve economies of scale.
During the week starting Aug. 5, the company began its first deliveries of the Model S in Europe. In the second quarter, the company recorded a GAAP net loss of $31 million or -$0.26 per share; this loss includes the effects of lease accounting, certain non-cash items, and one-time charges of $16 million associated with the early payoff of a Department of Energy loan. Excluding these GAAP-related items, second quarter net income was $26 million or $0.20 per share (an increase of 70% from the first quarter). Tesla appears to be on track to deliver 21,000 vehicles for 2013. The company's shares have risen a jaw-dropping 346% since January.
General Motors’ Cadillac division works on its own electric model
Another possible competitor to the i3 is General Motors’ (NYSE: GM) Cadillac ELR, expected to launch in 2014. The ELR has an electric battery and a gas-powered generator that extends driving range. The ELR uses technology that is used in Chevrolet’s Volt, one of the market’s most popular electric models. In the electric car market, the Chevrolet Volt came in second place in July sales with 1,788 vehicles sold. GM seems more interested in combining electric and gas-powered technology for the time being as consumers slowly warm up to electric cars. Sales of the Volt in July comprised about 1% of the total 234,071 units sold by the company. The company's net income was down in the second quarter as compared to the same period last year -- $1.2 billion or $0.75 per share, versus $1.5 billion or $0.90 per share in 2012.
My foolish conclusion
BMW’s electric line of vehicles, starting with the i3 and continuing to future models like the i8, will allow the company to comply with environmental and energy regulations while continuing to sell its popular combustion engine models. It will be interesting to see if the i3 has a successful launch, though it probably won’t contribute much too BMW’s sales in the foreseeable future. With the i3, yet another electric car will enter the market and put sales pressure on Tesla and GM. If the i3 is a winner with consumers, it may draw some customers away from Tesla and GM’s luxury electric or plug-in models. For now, however, GM and BMW shares provide the best value; Tesla's shares may be due for a correction by year’s end.
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Eileen Rojas has no position in any stocks mentioned. The Motley Fool recommends General Motors and Tesla Motors . The Motley Fool owns shares of Tesla Motors . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!